Challenges Faced by HR Management From Staff Cutbacks

by Tia Benjamin; Updated September 26, 2017

As of summer 2010, CNNMoney journalist Chris Isidore reported that nearly 8 million American jobs had been lost since the start of the recession in 2007. There is no doubt that businesses are feeling the impact of downsizing, and human resources departments face unique issues when dealing with a reduced workforce. Whether voluntary separations, hiring freezes or mass layoffs are needed, each approach presents challenges for the company's ongoing operations.

Implementing the Cutback

The first issue to decide is the type of cutback that will be implemented. If immediate cuts are necessary, it is likely that the company will resort to layoffs and early retirement incentives. If a reduction is needed over time, a hiring freeze might be an alternative solution.

Each scenario presents challenges for implementation. The company must decide how to announce and implement each option, avoiding any adverse impact or perception of discriminatory practices. Human resources must ensure that any policies or collective bargaining agreements are adhered to. If the workforce is unionized, the company must meet with the union and confer over the impact of the action -- although not necessarily the decision itself. During implementation, human resources must work to address rumor control and provide as much information to employees as possible. Job placement services, employee assistance programs and financial counseling are all services that human resources should consider offering to affected employees.

Employee Morale

In the aftermath of a mass downsizing, employee morale will undoubtedly be affected. Employers should strive to be as open as possible during the process. Information should not come as a surprise to employees. If the company repeatedly assured workers everything was fine before announcing an unexpected layoff, it will be difficult to regain the trust of the workers who remain. Similarly, if the company focus has always been on meeting the needs of employees and taking active steps to motivate and encourage staff, a forced layoff may actually be more detrimental because it is so contrary to employees' expectations of the organization. Management and human resources should meet regularly with employees to keep them informed, answer questions and respond to concerns.

Loss of Knowledge and Skills

Any downsizing of the workforce is likely to result in the loss of key knowledge and critical skills. In the case of a voluntary separation program or early retirement initiative, the problem is compounded because the company has much less control over who leaves the workforce. This can create an uneven loss of skills across the organization. Since early retirement incentives apply primarily to older workers who generally have more tenure with the company, the loss of institutional knowledge is a real concern. Human resources managers need to structure the downsizing where possible to allow time for transfer of critical skills. Business processes may need to be reorganized and reengineered, and staff may need to be reallocated to areas that have been significantly affected by employee departures.

Because turnover increases in the wake of a layoff, human resources must connect with key workers to outline their importance to the organization and provide information about how the company plans to recover. HR should also detail future career opportunities that can be realized by remaining with the business.

Workers' Compensation

Trends in workers' compensation reveal that claims increase immediately following company downsizing. This may be due to several reasons. Employees at risk of layoff may have been reluctant to file, but once laid off there is nothing to lose. Remaining employees are working harder and longer because there are fewer employees to get the work done. However, workers' compensation may also be seen as a form of income replacement for employees who have been let go, and human resources must review each claim carefully to identify any potentially fraudulent claims. Although stress claims from the fear of layoff have traditionally been denied by the courts, stress claims from the actual termination of employment have been accepted in California. Clear documentation, particularly regarding the layoff process itself, is important. It may be worthwhile having employees complete an exit interview as this documentation can be used later to refute fraudulent claims. Workers' compensation claims have been shown to decline when a consistent, fair and compassionate approach is taken by the employer in everyday operations.

Economic Recovery

While human resources must identify best practices in handling staff cutbacks, the challenges don't end once the downsizing is complete. Human resources must also position the company to be able to respond quickly and effectively when the economy recovers. The approach taken by the organization to the downsizing process can have an ongoing impact on the company's reputation with clients and potential future recruits. An inability to recruit critical talent later can mean an inability to rebound, so human resources must provide information openly and promptly to manage perceptions and rumors -- both internal and external -- about the fairness of any reductions and the need for additional downsizing in the future.

About the Author

For more than a decade, Tia Benjamin has been writing organizational policies, procedures and management training programs. A C-level executive, she has more than 15 years experience in human resources and management. Benjamin obtained a Bachelor of Science in social psychology from the University of Kent, England, as well as a Master of Business Administration from San Diego State University.